Bank Of New York Mellon Corp (BK) — Q4 2025 Earnings Call Transcript

Thank you, operator. Good morning, everyone, and welcome to our fourth quarter earnings call. I'm here with Robin Vince, our CEO; and Dermot McDonogh, our CFO. As always, we will reference our quarterly update presentation, which can be found on the Investor Relations page of our website at bny.com. And I'll note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures is available in the earnings press release, financial supplement, and quarterly update presentation, all of which can be found on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, January 13, 2026, and will not be updated. With that, I will turn it over to Robin.

Thanks, Marius. Good morning, everyone, and thank you for joining us. I'll begin with a strategic update, and then Dermot will take you through our financial performance in the fourth quarter, our outlook for 2026, and our increased targets for the medium term as we look ahead toward the next phase of our journey to unlock BNY's full potential over the long term. Starting on Page 3 of our quarterly update presentation. 2025 was another successful year for BNY. In short, we delivered record net income of $5.3 billion on record revenue of $20.1 billion and generated a return on tangible common equity of 26%. Total revenue grew by 8% year-over-year. In combination with expense growth of 3%, we drove 507 basis points of positive operating leverage on a reported basis and 411 basis points, excluding notable items, resulting in an improved pretax margin of 35%. Consistent execution delivered 4 consecutive quarters of positive operating leverage in 2025, bringing us to 8 consecutive quarters overall. Taken together, we grew earnings per share by 28% year-over-year to $7.40 and returned $5 billion of capital to our shareholders through common dividends and share repurchases. This strong financial performance was the output of our work to reimagine BNY and was enabled by tangible progress across strategic priorities over the past year, which we highlight in the 4 boxes on Slide 4. First, our commercial model is working. Operating as One BNY, we are starting to bring the full breadth of the company together to deliver more products and services to meet our clients' needs. This includes embedding sales practices and behaviors that enable our teams to deliver more and better for clients with greater consistency to drive deeper relationships with existing clients and open the door to new ones. We achieved record sales performance for the year, and we announced several noteworthy wins in the fourth quarter. Further deepening our relationship, WisdomTree selected BNY as their banking as a service provider for the WisdomTree Prime platform. This solution brings together banking, payments, custody, and digital assets to support the growth of WisdomTree's new retail distribution model and its strategy on being a leading digital asset forward investment manager. Jupiter, an active asset manager, selected BNY for a suite of capabilities from front to back from investment operations and data management all the way through to custody, streamlining their operating platform and positioning them for the future. And Japan's Government Pension Investment Fund selected BNY to deliver integrated data and analytics for private markets. This solution aims to help them manage complexity, enhance transparency, and improve decision-making across their growing alternative investment portfolio. Second, we continued to make progress in unlocking the scale and growth potential of our platforms by transitioning approximately half of our people into the platform's operating model over the course of 2025, which brings us to more than 70% of our people working in the model today. This initiative has been a core component of rewiring BNY to make us more agile and intentional in how we deliver to clients. Performance is part of a larger collection of initiatives that are at the heart of running our company in a fundamentally different way. Third, in 2025, we made significant advances in the adoption of AI, underscoring our industry leadership in this burgeoning space. Built upon very deliberate investments over the past several years, our enterprise AI platform, Eliza, is unlocking capacity for our people, allowing them to focus on higher value work for our clients. We recently announced a collaboration with Google Cloud to integrate Gemini Enterprise capabilities into our Eliza platform, enhancing our ability to support deep research, analysis, and data-intensive workflows across the company, building on existing collaborations with OpenAI and others. These collaborations underscore our commitment to deploying AI responsibly and at scale. We expect that over time, AI will allow us to remake many of our processes and systems in new and exciting ways. And that, together with embedding AI in our products and services, represents a significant opportunity for our company in the years ahead. Fourth, BNY has a rich 241-year history of innovation, from issuing the first loan to the U.S. government to becoming the first U.S. G-SIB to offer digital asset custody. Our focus on innovating new products and solutions is centered on building trusted market infrastructure for the long term and serving our clients in new and evolving ways, including increasing delivery of new capabilities connecting the traditional and digital asset worlds. This past quarter, for example, we launched the Dreyfus Stablecoin Reserves Fund, a government money market fund designed to support stablecoin issuers and institutional participants to manage eligible reserve assets, providing BNY's cash and liquidity solutions expertise to the growing digital payments ecosystem. Our recently announced tokenized AAA CLO strategy in partnership with Securitize brings high-rated structured credit product onto the blockchain with BNY serving as a sub-adviser and custodian of the underlying assets. And just last week, we announced that we have taken the first step in our strategy to tokenize deposits by enabling the on-chain mirrored representation of client deposit balances on our digital assets platform. As we reflect on the scope of our market-leading businesses, our central position as a provider of financial market infrastructure, and the depth and breadth of our client relationships, traditional and digitally native, we believe that we are particularly well positioned to advance the future of financial markets. From the very beginning of our work 3 years ago, we have taken a long-term view toward unlocking BNY's full opportunity as a financial services platforms company with a commitment to disciplined execution and sustained value creation for our clients and shareholders over time. I'm going to touch briefly on some of the work that has brought us here, described on Page 5 of our presentation. Two years ago, we communicated our strategic roadmap and a set of medium-term financial targets for what we viewed as the first foundation-setting phase in a multiyear transformation of BNY. While there are elements of that work that will continue well into the future, we consider that this is the right moment to begin to turn the page towards our next phase. But before we get to that, I'll take the opportunity to reflect on our efforts, the impact that we've seen across our businesses and operations, and how this has started to translate into improved financial performance. As we embarked on the journey, we recognized early on that we had to work across several fronts at the same time. Simplifying how we operate, improving execution, and delivering for our clients, and that how we did it as a team was essential to creating deep and enduring change. Thorough strategic and financial business reviews demonstrated to us the powerful combination of capabilities within BNY. We are the #1 custodian in the world and the #1 collateral manager, the leading provider of issuer services, and the primary settlement agent for U.S. government securities. We operate a top-tier payments and liquidity franchise and offer our clients leading investments and wealth capabilities. Individually, these are market-leading businesses; together, they represent a set of highly adjacent financial services platforms operating at the center of global financial markets, difficult to replicate at scale and increasingly valuable to our clients. To organize the company around execution, we deliberately framed our work across 3 simple elements of strategy, which we continue to focus on. The first was clients. To be more for them, to deliver more of our existing products to our existing clients, to add new clients, to add new products, and to meet clients where they are with solutions tailored to their needs and responsive to market trends and opportunities. The second was on how we run our company. We knew we could do that better: simplifying, improving financial discipline, breaking down barriers, challenging the status quo, and reimagining our operating model as a platform company. The third was culture. Simple to say, hard to do, but magical when it works: a collective sense of ownership, teamwork, and accountability, all coming together to bring the other 2 key strategic pillars to life. This spirit of ownership and accountability is at the heart of our delivery. So it was important to us to build credibility and momentum through consistent execution toward better business and operational performance, some examples of which you can see on Slide 6. What has been and continues to be the single most compelling growth opportunity for BNY is doing more business with our existing clients. In 2024, we launched our new commercial model designed to encourage our sales and service teams to raise their ambition, equip them with new tools, and enable our people to deliver solutions from across BNY, leveraging the full breadth of our platforms. Over the last 2 years, the number of clients buying 3 or more of our services increased by more than 60%, and organic fee growth has climbed to 3%, reflecting good progress with even greater opportunity ahead. In combination with stronger organic growth, we took steady, deliberate actions to reduce sensitivity to interest rates, driving more resilient top line revenue growth in a range of macroeconomic environments. At the same time, our ongoing transition and increasing maturity in the platform's operating model are reducing friction and driving further productivity improvements. For example, investments in digitization and automation have meaningfully lowered the unit cost for processes like striking a NAV and settling a trade, and our people are building innovative AI solutions that we expect over time will have a meaningful impact across the company. We're proud that in 2025 alone, we deployed over 130 digital employees, industry-leading multi-agentic AI capabilities. Our digital employees work alongside our people, supporting them with tasks like validating payment details and remediating code vulnerabilities, allowing teams to focus on higher value work and client outcomes. Taken together, these metrics give glimpses into how our execution, milestones and examples are helpful indicators that our strategy is working and that there continues to be meaningful opportunity ahead. Turning to Slide 7. By centering the company on positive operating leverage as our North Star, we created a clear intuitive framework for our teams to execute on. The cumulative impact of our steady improvement year after year while capitalizing on a relatively supportive market backdrop has resulted in meaningful improvement in BNY's financial performance over the last few years. More consistent revenue growth and deliberate expense management have resulted in positive operating leverage, margin expansion, and improved profitability, together, driving double-digit annual earnings per share growth. Turning to Slide 8. When compared to BNY's financial performance over the prior decade, we can see the difference that consistent discipline, clear intent, and sustained execution make over time. More resilient top line revenue growth has started to build and better control of our expense base has allowed us to continue to self-fund important investments in future growth. While we're encouraged by this progress, we are not satisfied. Our work is far from complete. We remain humble and intensely focused on the opportunity ahead. To that point, I'll wrap up on Slide 9 with where we are headed next. With the foundations largely in place and more of the people in their seats to help us execute, the next phase of our journey to unlock BNY's potential is about realizing scale and growth opportunities across our company. As we mature in our new commercial and platform models, unlock capacity using AI, and in so doing, serve our clients in new and better ways, enabling the global financial markets and infrastructure of the future. Taken together, our focus for 2026 and over the medium term represents an exciting shift: Built on the work done over the past 3 years to enable higher growth and deliver on the competitive advantages embedded in BNY as we remain steadfast in our commitment to create value for you, our investors. I want to thank our teams around the world for their dedication to our clients and their commitment to reimagining our company. We are entering 2026 with positive momentum, and we are excited for the work ahead of us. With that, I'll turn it over to Dermot to take you through the financials for the quarter in greater detail before reviewing our outlook for 2026 and our next set of milestones.

Thank you, Robin, and good morning, everyone. I'm picking up on Page 12 of the presentation with our results for the fourth quarter. Total revenue of $5.2 billion was up 7% year-over-year. Fee revenue was up 5%. This included 8% growth in investment services fees primarily driven by net new business, higher market values, and higher client activity. Investment Management and performance fees were flat as growth primarily resulting from higher market values was offset by the impact of the mix of AUM flows and the adjustment for certain rebates we discussed in prior quarters. Firm-wide AUC/A of $59.3 trillion increased by 14% year-over-year, reflecting client inflows, higher market values, and the favorable impact of a weaker U.S. dollar. Assets under management of $2.2 trillion were up 7%, reflecting higher market values and the weaker dollar, partially offset by cumulative net outflows. Investment and other revenue was $135 million in the quarter, including $43 million of other investment losses and $15 million of net securities losses. Net interest income increased by 13% year-over-year, primarily reflecting the continued reinvestment of maturing investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Expenses of $3.4 billion were flat year-over-year on a reported basis and up 4% excluding notable items. This reflects higher investments and revenue-related expenses, employee merit increases, and the unfavorable impact of the weaker dollar, partially offset by efficiency savings. Provision for credit losses was a benefit of $26 million in the quarter, primarily driven by improvements in commercial real estate exposure and changes in the macroeconomic forecast. Pretax margin was 36% on a reported basis and 37% excluding notable items. And return on tangible common equity was 27%. Taken together, we reported earnings per share of $2.02, up 31% year-over-year. And excluding notable items, earnings per share were $2.08, up 21%. Robin touched on our results for the full year earlier, but turning to Page 13, I'd like to expand on some of the most important items. We grew total revenue by 8% year-over-year to a record $20.1 billion for the full year of 2025. Fee revenue was up 6%. We grew investment services fees by 8%, primarily driven by net new business, higher market values, and client activity. Investment Management and performance fees were down 2%, reflecting the mix of AUM flows and lower performance fees, partially offset by higher market values and the weaker dollar. Net interest income was up 15%, primarily driven by the reinvestment of maturing investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Expenses of $13.1 billion were up 3%, both on a reported and on an operating basis. Excluding the impact of notable items, the increase reflects higher investments, employee merit increases, higher revenue-related expenses, and the unfavorable impact of the weaker dollar, partially offset by efficiency savings. Pretax margin was 35% on a reported basis and 36% excluding notable items. And return on tangible common equity was 26% for the year. As Robin noted earlier, we reported earnings per share of $7.40. Excluding notable items, earnings per share were $7.50, up 24% year-over-year. On to Capital and Liquidity on Page 14. Our Tier 1 leverage ratio for the quarter was 6%, down 9 basis points sequentially. Average assets increased by 3% on the back of deposit growth, and Tier 1 capital increased by $439 million, driven by capital generated through earnings and a net increase in accumulated other comprehensive income partially offset by capital returns through common stock repurchases and dividends. Our CET1 ratio at the end of the quarter was 11.9%, up 17 basis points sequentially. Over the course of the fourth quarter, we returned $1.4 billion of capital to our shareholders, representing a total payout ratio of 100%. Our consolidated liquidity coverage ratio as well as the consolidated net stable funding ratio remained unchanged at 112% and 130%, respectively. Next, net interest income and balance sheet trends on Page 15. Net interest income of $1.3 billion was up 13% year-over-year and up 9% quarter-over-quarter. Like the year-over-year increase discussed earlier, the sequential increase was primarily driven by the continued reinvestment of maturing investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Average deposit balances increased by 4% sequentially, reflecting 4% growth in interest-bearing and 1% growth in noninterest-bearing deposits. Average interest earning assets were up 3% quarter-over-quarter. Cash and reverse repo balances increased by 4%, loans increased by 5%, and investment securities portfolio balances increased by 2%. Turning to our business segments, starting on Page 16. Security Services reported total revenue of $2.5 billion, up 7% year-over-year. Total investment services fees were up 11%. In Asset Servicing, investment services fees grew by 11%, primarily reflecting higher client activity and higher market values. Asset Servicing continues to show strong momentum as clients increasingly access the breadth of capabilities across our platforms to help them evolve their operating models. Sales wins over the course of the year showed broad-based growth across products and segments with particular strength in custody and with alternative asset managers, banks, and broker-dealers, a testament to our targeted investments in the fastest-growing segments of the market. ETF AUC/A of $3.8 trillion ended the year up 34% year-over-year, reflecting growth from the more than 2,500 funds serviced on our platform, which was up 22% year-over-year. Alternatives AUC/A were up 10% year-over-year, including double-digit growth in private markets. We continue to invest in capabilities to support our clients' growth, including in retail alternatives with solutions spanning custody, fund services, corporate trust, FX, and hedging. Broadly speaking, approximately half of all asset servicing wins this past year represented multiline of business solutions reflecting the growing effectiveness of our new commercial model and client demand for consolidating with trusted partners. In Issuer Services, Investment Services fees were up 12% primarily driven by higher client activity in depository receipts. And in our Corporate Trust business, we're pleased with the momentum across our franchise and see significant multiline of business opportunities ahead especially with corporate and municipal clients. We maintained our #1 position in conventional debt servicing and in CLOs and munis where we hold #2 positions we increased our market shares by 4 and 3 percentage points year-over-year, respectively. In Security Services, overall, foreign exchange revenue was down 3% year-over-year reflecting lower spreads on the back of lower volatility, partially offset by higher client volumes. Net interest income for the segment was up 8% year-over-year. Segment expenses of $1.7 billion were flat year-over-year, reflecting higher investments and revenue-related expenses, employee merit increases and the unfavorable impact of the weaker dollar, offset by efficiency savings and lower litigation reserves. Security Services reported pretax income of $838 million, a 30% increase year-over-year and a pretax margin of 34%. It is worth highlighting that for the full year of 2025, Security Services reported a pretax margin of 33%. That was an improvement of 4 percentage points year-over-year and exceeded the medium-term target of equal to or greater than 30% that we established for this segment in December of 2021. Next, Markets and Wealth Services on Page 17. Markets and Wealth Services reported total revenue of $1.8 billion, up 8% year-over-year. Total Investment Services fees were up 4%. In Pershing, investment services fees were down 2%, reflecting client activity in the prior year quarter related to the de-conversion of lost business, partially offset by higher market values. Net new assets were $51 billion in the fourth quarter, representing healthy growth from both new and existing clients. Over the course of 2025, we earned numerous wins from new $1 billion-plus wealth firms, and the business accomplished several multiyear contract renewals with key clients. Our commitment to serving multibillion-dollar growth-minded wealth firms across a full suite of custody, clearing, lending, investment products, and wealth services is met with interest from existing and new clients, and we remain focused on capitalizing on the important opportunity to enable growth for breakaway advisers as their platform of choice. For example, this past quarter, 71 West Capital Partners and West Wealth Partners selected BNY Pershing to provide custody and clearing for their new independent full-service RIA firms. In Clearance and Collateral Management, Investment Services fees increased by 15%, reflecting broad-based growth in collateral balances and clearance volumes. Average collateral balances of $7.5 trillion increased 15% year-over-year, and average settlements exceeded 1 million per day in the fourth quarter, reflecting higher market activity and new clients on our platform. Against a supportive backdrop from continued issuance and demand for U.S. treasuries, we're focused on innovating solutions that help our clients optimize capital meet evolving regulatory requirements, scale, operational efficiency, and access market infrastructure and liquidity. In our Payments & Trade business previously called Treasury Services, Investment Services fees were up 3%, primarily reflecting net new business. Over the course of the year, this business has shown strong performance on the back of broad-based growth across products and regions. Solid growth in sales wins over the course of the year, enabled by our strategic investments in capabilities and talent, give us good momentum into 2026. Net interest income for the segment overall was up 20% year-over-year. Segment expenses of $930 million were up 9% year-over-year reflecting higher investments and revenue-related expenses, employee merit increases and higher severance expense, partially offset by efficiency savings. Taken together, our Market and Wealth Services segment reported pretax income of $882 million, up 9% year-over-year and achieved a pretax margin of 49%. Turning to Investment and Wealth Management on Page 18. Investment and Wealth Management reported total revenue of $854 million, down 2% year-over-year. Investment Management fees were up 1% driven by higher market values and the favorable impact of the weaker dollar, partially offset by the impact of the mix of AUM flows and the adjustment for certain rebates, which I mentioned before. Segment expenses of $703 million were flat year-over-year as the impact of higher investments and the weaker dollar was offset by efficiency savings. Investment and Wealth Management reported pretax income of $148 million, down 14% year-over-year and a pretax margin of 17%. As I mentioned earlier, assets under management of $2.2 trillion increased by 7% year-over-year. In the fourth quarter, we saw net outflows of $3 billion including $23 billion of net outflows from long-term strategies and $20 billion of net inflows into cash. Wealth Management client assets of $350 billion increased by 7% year-over-year, reflecting higher market values. Over the past year, we've worked hard to bring our investment in wealth management business closer to our other BNY platforms, streamlined operations and build towards stronger top line growth, including by making several key strategic hires. We expect that 2026 will be the year in which this work will start to translate into improved financial performance. I'll close with our financial outlook. Page 21 shows the current expectations for 2026. Notwithstanding a very dynamic operating environment, positive operating leverage continues to be our North Star, and so we have set ourselves up for another year of more than 100 basis points of positive operating leverage in 2026. This reflects our current expectation for total revenue excluding notable items, to grow by approximately 5% year-over-year in 2026 market-dependent. And accordingly, a plan for approximately 3% to 4% growth in expenses, excluding notable items. Specific to the first quarter, I would like to remind you that staff expenses are typically elevated due to long-term incentive compensation expense for retirement-eligible employees. On taxes, I'd like to note that over the course of 2026, we expect a quarterly tax rate of approximately 23%, with the exception of the first quarter, in which we currently expect to see a tax benefit from the annual vesting of stock awards. Finally, turning to Page 22 for our outlook for the medium term. Two years ago, we communicated our first set of medium-term financial targets, which were to improve BNY's pretax margin to equal to or greater than 33% and our return on tangible common equity to equal to or greater than 23% while maintaining a strong balance sheet. Today, we are raising the bar. We are increasing our pretax margin target by 500 basis points to 38%, and we are increasing our return on tangible common equity target also by 500 basis points to 28%. These new medium-term financial targets represent the next milestones on our path to unlocking BNY's full potential over the long term. What remains unchanged is our commitment to prudent balance sheet management and with it, our philosophy for capital deployment and distributions. Our Tier 1 leverage ratio management target remains unchanged at 5.5% to 6%, and we will continue to manage ourselves conservatively to the upper end of that range for the foreseeable future. Robin talked about our strategic priorities for this next phase on our multiyear transformation of BNY earlier. These new medium-term financial targets are a reflection of our confidence in the solid foundation we've built over the past few years and they demonstrate our determination to continue driving positive operating leverage as we realize greater scale and growth opportunities across our platforms.

I guess maybe first question for you, Dermot, on the guidance, especially when we look at the revenue growth, just annualizing our fourth quarter NII gets you to about 9% growth on the NII side. So if you don't mind unpacking that a little bit around what are the assumptions underpinning that revenue growth outlook and on fees as we think about '26?

Okay, Ebrahim, I hope you're doing well. This year, we're approaching things a bit differently. We closed the year with $20.1 billion in revenue, and our performance over the last three years has boosted our confidence in guiding top line growth. As I mentioned earlier, we are projecting a year-on-year increase of about 5% in top line revenue for 2026. This includes both fees and net interest income. I previously indicated that Q4 serves as a good starting point, and December was particularly strong for us in net interest income. Therefore, you should expect our net interest income to be slightly above 5% this year, while fees may come in a bit below 5%. Overall, we anticipate a top line growth of around 5%.

Understood. That's helpful. I have a broader question regarding our strategic targets. Robin, could you share your thoughts on the medium-term earnings growth potential for BNY? Additionally, if the revenue growth environment deteriorates for any reason, how confident are you in maintaining the margins and the ROTCE targets that you have upgraded today?

Sure. So look, I'll take it, it's kind of got 2 parts. I'll take it both parts of that. But first of all, on the growth targets. Look, we've said all along, the positive operating leverages are North Star. And we've also said that there will be different components to achieving that in any year. And I think it is important to note that, and that's one of the reasons why as Dermot just said, we sort of moved to the total revenue guide because we recognize it's sort of a compositional question. But you should be able to hear from us, certainly, in our prepared remarks, is a bit of an increased conviction inside the company about our ability to win and grow. And we've certainly been setting internal aggressive sales and revenue targets to be able to do that. But to your question, we're certainly humble about the fact that we've got to be careful around any particular assumptions on market environment. And this is where I come back to the fact that we're all risk managers at heart. We're sort of projecting out a lot of different potential scenarios. And we take very seriously the fact that we've got to have levers to the extent that the markets might end up disappointing. And so we created agility in our expense base. And that's been part of our work over the course of the past 3 years. The platform's operating model work, the work that we originally did around some of the efficiency savings, making choices. And the fact that we've now got the rhythm of saying, 'hey, we could actually make different choices on business development expenses, compensation if needed, the investment book of work.' And so this agility is extremely important. But I'll just also recap with a reminder of the fact that we've also deliberately positioned the platforms inside the company and the whole company to trying to reduce the macro sensitivity to the world. And so you've seen that in NII. We actually specifically called it out in the presentation. But if you look at the different cylinders of the revenue engine of BNY: equity market values, fixed income market values, equity market transaction volumes, fixed income market volumes, government issuance, private sector issuance, capital markets activity, GDP growth, payments, software, services, execution and clearing, generally, fixed income and equities. That is all very deliberately positioning ourselves to be able to be more resilient. But then, of course, to your question, to the extent that things happen, we can still react to them. That's how I think about it together.

As part of your new hire targets, how much does your thought about tech and AI play into that and specifically, as it relates to AI, you certainly got our attention. You have over 100 digital employees. How many of those AI digital employees do you expect to have over 3 to 5 years? And what's the savings from them? And again, how does that play into your new hire targets?

Yes. Thanks, Mike. Look, AI, we think, is super important. We think it's just going to be able to be a catalyst for transformational change. We think that's true for the world. One of the most important evolutions in technology, frankly, in hundreds of years is the way that we think about it. And so given that, it's very hard to project very clearly exactly where we'll be 1, 2, 3, 4, 5 years from now. And so there's always the risk that we haven't properly and fully incorporated it into our medium-term targets because while we thought about it, it's hard to look into the future that clearly. But the way that we think about AI and maybe this will be helpful, therefore, is we think that the technology has already gotten to a level where it can have a very significant impact, frankly, on all of us individually and companies and certainly here at BNY. And if that follows then we think it follows that adoption and integration risk becomes the limiting factors. So what we focused on is the real cultural side of it. Making AI for everyone, everywhere and for everything at BNY is our mantra. We launched our AI hub in 2023. That was just after the ChatGPT moment. We now have an enterprise AI platform, Eliza, that's general intelligence model-agnostic, and it supports this multi-agent functionality that underpins the digital employees that you referenced. And then we've put in place the resources to support that to really enable the scaling of it. That's all of the GPU compute. We've got our own NVIDIA hardware and tech, but we've also got the collaborations with Google that I mentioned in my prepared remarks and OpenAI and others. And then the culture point again, and you'll see this, it sort of resonates through the whole set of transformation and rewiring concepts that we're talking about for the company. It's as true for AI because if AI is this great capability, it's a superpower, it can, therefore, be a capacity multiplier for our people and so that's what is causing our people to be able to pull AI towards them, hence, the digital employees working side by side with our people. Now it is early days. We will continue to give you mark-to-market in terms of how we're making progress on this. But we are short-term enthusiastic, medium-term excited, and long term, believing that it will have a significant positive impact.

That was helpful. So I get the enterprise with Eliza scaling culture, you're excited about it, but could you put a little bit more meat on the bones if you could, like you might have 134 digital employees today and does that equate to savings? And where do you think that number goes to? Or that's a little bit more detail if you could?

Mike, it's Dermot here. If you review the materials on Page 6 of our financial presentation, you'll see over the last couple of years that our headcount has trended down a little bit, but that's not really anything to do with AI. We talk about internally, AI is unlocking capacity. We don't think about it as in the narrow definition of efficiency. It's all about growing with clients, increasing revenues, and optimizing the potential for our employees. So you have to think that over time, AI as a superpower, as Robin just said, is going to increase revenues, create capacity, and will allow us to do more with existing resources. And over the last couple of years, we've been doing this right since the get-go in terms of enterprise-wide strategy. We've been quite constrained in our spending, and we've been very disciplined; we continue to spend more on cyber resiliency than we do on AI. So the return for our money is very, very high from the enterprise today. And so we only see upside from here.

I wonder if you can detail a little bit the pretax margin improvement to 5 points. Can you go through kind of each of the businesses and talk as to how your individual business line pretax margin thoughts are evolving within that too? Like where do we get the most juice?

Okay. Thanks for the question. So if you kind of go back to 2023, we delivered an actual performance pretax margin of 30% and ROTCE of 22%. And back then, when we initially established the medium-term targets, we went for 33% and 23%. And now we're going with new medium-term targets today of 38% and 28%. So you see real progression there over the last 3 years. And also today, as I mentioned on the first question from Ebrahim, you see us guiding for the first time, top line revenue growth. Previously, we guided by business. You will have seen us guide 4 years ago on security services and we've kind of surpassed that guide. And so that really speaks to the power of the One BNY transformation that we've been doing over the last 3 years. We have 3 segments: Security Services; we see upside in Corporate Trust; we see upside in Depository Receipts. We feel that asset servicing over the last 3 years has really transformed in terms of growing revenues, taking advantage of efficiencies and driving pretax margin. So that kind of disciplined focus on expenses is allowing us to better price for business to win in Asset Servicing. Market and Wealth Services is the most akin to platforms at scale that we have at the moment as the rest of the firm matures in the platform operating model. The pretax margin there is roughly, give or take, around 50%. We would expect to grow that pie at that margin. And so the upside from there on that segment was probably a little bit muted. But in Investment and Wealth Management, where we've guided 25% and we finished last year at roughly 17%. That's where we see the most opportunity in '26 and beyond as we kind of begin to see the green shoots of recovery in that segment come back. So One BNY overall delivering for clients, as Robin said in his prepared remarks, 64% increase in clients buying from 3 or more lines of business in the last 3 years. 10% of new logos coming to the firm last year as a percentage of sales. So the clients are noticing what we're doing and want to do more with us.

And remember, there's a compositional thing here as well, Ken, because if you think about the combination of corporate trust, depository receipts, payments, trade CCM, and Pershing, which are kind of the platform businesses that Dermot was talking about, that now represents about 2/3s of the PTI of the company; 3 years ago, that was just 55%. So there's a bit of an averaging here given the fact that those are the segments, MWS and the businesses that are actually growing the fastest inside the company. So actually, as a percentage of the whole, they're growing, and that's a factor here too.

Yes. Got it. And just a follow-up, Dermot, on your point about how December was a strong month for NII. You guys have done a very good job kind of consistently being conservative about your NII outlook. What would you say about the fourth quarter? Was it deposit balances? Was it pricing? Like what are the elements that may not run rate forward relative to your exit?

Q4 showed that balances were well managed, and we often mention that deposits aren't our primary focus; instead, net interest income is a result of our overall franchise activity. In Q4, we experienced significant performance in our asset servicing business, which led to better-than-expected balances during the final weeks of December, contributing to the outperformance.

Okay. I would just think that just as you're continuing to push, as you mentioned just before, like why wouldn't that just be a better organic hold on just activity and overall balances?

For 2026, we anticipate that balances will remain relatively flat throughout the year. Typically, Q4 is our peak quarter for balances, while Q3 tends to be the slowest seasonally. Over the next few quarters, we expect a slight moderation. The estimate of over 5% relates primarily to the asset side of the balance sheet, as we have securities maturing and are reinvesting them for a pickup of about 100 to 150 basis points. We have refined our expectations regarding interest rate fluctuations, and we believe balances will stay steady, with the increase coming from reinvesting maturing assets into higher-yielding securities.

So Robin, I wanted to start with a question on your newly launched tokenized deposit capabilities and I was really hoping you could speak to institutional demand for the offering what has been some of the early feedback? And as the effort scales over time, how might your monetization approach differ versus some more traditional deposit gathering activities?

Sure. So look, I just sort of step back from the whole thing because this really is part of the overall digital asset opportunity. We see global financial markets as transforming, moving towards more of an always-on operating model. And we're in the business of moving, storing, and managing money. And so we think we're particularly well positioned to connect the traditional and the digital rails to really be able to enable clients. And so our roadmap has really been, right from the beginning, focus on the innovation, be able to bring the capabilities online with that first with digital asset custody, stablecoin enablement. You just mentioned the tokenized deposits. And so that allows us to be able to serve both the new digital-native clients who, by the way, want the new digital services, but they also want some of the traditional services from us. So we're enabling both with them, and it also allows us with our existing clients to be able to help them to be able to move into this world. So for instance, as a client might want to open up a new share class in parallel to their traditional share classes, maybe they want to open up a tokenized share class, we can do that as well. So it really is these 2 things working in concert that we think unlocks new possibilities. And we see the value of the improved efficiency, reducing friction that is real value here. And so then when you click in, stablecoins and tokenized deposits are just to become 2 examples of all of that, stablecoins providing the on-chain settlement currency, which is very necessary and it's frankly because it's their stable value, probably better than some of the other alternatives. And there, of course, there are choices there in the stablecoins. And then tokenized deposits really improving the internal utilization of cash. And so for a client making a deposit with us, we can actually improve the usability of that deposit, it becomes sort of programmable, if you will. And it allows that money to be able to work harder and faster for them to be able to facilitate other activities and ultimately might, in fact, create the opportunity for clients to be able to do more things with us anchored around some of those types of activities. Great question. So the way I would think about this is, as you rightly pointed out, the growth rate over the last couple of years has been quite nice to see. And so we would say the growth rate from here, probably a little bit more modest compared to the previous years. We have the treasury clearing mandate coming in, which we expect to kind of influence some of the things that go on there. So in the U.S., I would say, more treasury issuance a little bit more stable than we've seen in the prior couple of years because we've kind of volumes, et cetera, et cetera, are beginning to moderate and where we see some of the growth opportunities outside the U.S., and we've said that on prior calls, where we're continuing to invest in new products and services around the world. So we expect to continue to grow internationally and moderate in the U.S.

I was hoping to jot a little bit and talk about the fee revenue outlook as a whole. You guys updated the organic revenue growth for 2025, which looks like came in at 3%. Some businesses are doing better; some are doing a little worse. And the ones where you're seeing strength, particularly things like Security Services, it sounds like that momentum is continuing and then in things that are slower, when I think about like Pershing or maybe your asset management, there are some idiosyncratic things that you pointed to that should improve. So as you think about organic fee growth into '26 and beyond, any way to frame what that could look like?

So thanks for the question, Alex. I really would look at and study Page 6 of our presentation. There are 2 graphs that I particularly like on that page. One is the deeper client relationships where you can see that over the last 3 years, we've grown clients who are buying from 3 or more lines of business has increased by 64%, and then when you pivot over to the middle page, you can see that 2022 flat organic, '23 flat organic 24%, 2%, and 2025, 3%, then that gives us the confidence to be able to guide 5% to the top line of $20.1 billion. And as I said in answer to an earlier question, 10% of our sales last year were with new logos. And when you listen to Robin and his answer to the previous question on digital assets, more clients are coming to us because they want thought leadership. And as a consequence of leadership in new spaces, frontier products, we're doing stuff in traditional services. So the short answer to your question is it's the portfolio effect of delivering One BNY to a broad range of clients. Robin said 3 years ago, we have a client list that's the envy of the Street. We pretty much service most of the S&P 500. And so clients are seeing the change that's happening at the company, and they want to do more with us. So I would say no one business is doing better than the other. Everything has upside, everything is opportunity. As it relates to Pershing specifically, I'm pleased to say that the last couple of years, I would have said on most calls, we were deconverting due to M&A activity; that's largely behind us, which reinforces why we feel confident that we continue to grow now at mid-single digits for net new assets. So we feel good about Pershing and the opportunity that's in front of us there. And also, as I said in the answer to a previous question, we feel we've turned the corner in IWM, and '26 is the year that we're going to begin to see the transformation as we brought that business closer together with BNY.

And Alex, I'll just add one thing, which is, I understand we've discussed this several times over the past couple of years regarding where the growth will come from and how we are approaching it. We've previously mentioned the alpha and beta in our overall business model. I want to remind you about the beta aspect. Dermot touched on it in relation to digital assets. Keep in mind that there are several megatrends that we believe can serve as interesting tailwinds for the company. The question is whether we have positioned the company and our business platforms correctly to serve clients in relation to these various trends. To briefly run through them: capital markets, with growth in issuance, trading, and asset movement; corporate trust, our payments and trade business, and depository receipts align well with this trend; alternatives, where we support clients in private market assets through Corporate Trust and Asset Servicing; wealth, an important segment with significant contributions from Pershing and wealth investments; digital assets, which we have discussed, with many of our businesses positioned to enable this; the growth of fixed income, relevant not only in obvious ways but also in financing through private markets, data centers, and U.S. treasury borrowing; and finally, outsourcing, with clients seeking to focus on their strengths and asking us to step in as a trusted provider, giving us the opportunity to serve them more comprehensively. With this backdrop, we have not only the alpha from our internal efforts but are also strategically positioned to take advantage of these trends. We see the combination of both aspects as quite promising.

Yes, I agree with that, and I'm definitely favorable about the direction indicated in Slide 6. For my follow-up, could you provide more details on the capital return plans for 2026? Additionally, regarding the growth strategy of the company, you mentioned margins and capital return targets, but I’d like to know how you see share repurchases and overall capital returns evolving in the next few years.

Overall, our capital philosophy remains consistent. Both Robin and I prefer to operate at the upper end of our Tier 1 leverage ratio, especially given the market uncertainty we've experienced in recent years. We aim to maintain a Tier 1 leverage ratio around 6%. BNY has a capital-light, clean, and liquid balance sheet that generates capital effectively. Over time, we have reliably returned earnings to our shareholders, and we anticipate that will continue. When considering our guidance for 2026, it will align with our established model. The buyback figure as a percentage is simply a result of the factors we've discussed earlier, and it is expected to fall within that range. Therefore, we don't find it necessary to provide further guidance on the buyback, given our long-term strategy and model.

I actually have a question on organic growth as well. And thanks for all the color you've given. So you generated 3% organic growth last year. Your assumptions in your outlook are that organic growth would accelerate; markets are flat, but yet the fee revenue outlook is sub-5%. So this is kind of 2 possible outputs: conservative outlook? Or was there some over-earning or one-time items that might have elevated the baseline that you're growing off of when we think about 2025 into 2026?

So looking at organic growth from 2026 compared to 2025, if you refer back to Page 6, you can see the influence of the commercial model on the two graphs showing organic fee growth and the strengthening of client relationships. It's quite an intriguing narrative. We are actively recruiting new talent, and the commercial model is still under two years old. We continue to attract new talent globally and are raising our ambitions for client services across a broad spectrum. Thus, I anticipate higher organic growth this year, driven by the momentum of the new commercial model, product development, and the cultural changes we've implemented over the past couple of years. We haven't highlighted this yet, but we have appointed a new Chief Product and Innovation Officer who has been with us for just over a year, and we expect a similar effect on the product side as we've seen on the commercial side. Therefore, we are optimistic about the outlook for organic growth through 2026.

I appreciate that. My question is about the organic growth and its potential to accelerate in flat markets. How do we end up with less than 5% fee revenue growth? Additionally, if organic growth is present, why would balances remain flat? Don't balances typically align with organic growth? Shouldn't they move together? Or is there something in the baseline that could explain the discrepancy between those two metrics?

You framed the question at the beginning as we are over-earning. We don't think we're over-earning. We think we are being thoughtful in the way that we're positioning the outlook for 2026. We see, of course, variability on each of the inputs to the total revenue actual overall line. But we recognize that it could come a little bit more or less with NII. It could come a little bit more or less with the organic fee growth. Of course, no one quite knows what's going to happen with markets, which is why we're sort of making what we think is a reasonable baseline assumption there. So you're doing the math and we're kind of agreeing with you. We're not quite exactly sure how the composition is going to come, but we feel pretty good about the guide.

Your new medium-term targets seem closely aligned with the adjusted performance of the past quarter. Can you elaborate on why you believe these targets are ambitious enough considering the opportunities available to BNY over the next 3 to 5 years? You met the targets you set in January 2024 for your full-year adjusted results. I understand your cautious approach and the need for consistency across various market conditions. However, can you provide insights on why you believe the expectations for the next few years are set high enough?

I anticipated this question. To answer it, I would direct you to Page 22 of our highlights presentation. When we finished 2023, our pretax margin was 30%, and we set medium-term targets of 33% and 22% for ROTCE, with 23% as the goal. I believe you recognized that ambition and appreciated our targets, noting that it was our first time doing so and that BNY was raising the standard for itself. Now, having closed the year on a strong note, we are setting new targets of 38% and 28% for the next 3 to 5 years. We intend to achieve this over time, through various cycles. Many factors could lead to different outcomes, and the path will not be straightforward. We are continually pushing ourselves to exceed these targets, treating them as a baseline for our ambition. We see this as a significant and challenging goal for the firm as it undergoes transformation, and we are committed to surpassing these targets.

Just as a follow-up, it's great to see the improvement in client relationship depth with clients who work with 3-plus businesses up 64% versus 2 years ago. Can you give us any sense of the number in absolute figures? Is it a single-digit percent of use 3 or more businesses at BNY right now? Is it the majority? Is it somewhere in between? Where do you want us to get to over the medium term?

Last year, we achieved two record sales quarters and have seen three consecutive years of year-on-year growth in core fee sales. Considering that this commercial model is less than two years old, it gives reason for optimism about the future. Sixty percent of new clients are purchasing from three or more lines of business, and ten percent of sales in 2025 are expected to come from clients who are new to BNY. This aligns with Robin's comments regarding new products that attract clients seeking our thought leadership; while they engage with us, they are also utilizing traditional services. We've noticed a 20% increase in annual sales productivity, reflecting the drive and energy within our commercial organization, as clients are eager to discuss greater collaboration. Additionally, over the past three years, we've invested approximately $0.5 billion annually in enhancing client service, solutions, and products. This investment is particularly evident in our security services segment, where we have significantly outperformed on margins. We are witnessing a strong momentum in this area, and we expect it to continue moving forward.

Robin, can you give us the bigger picture? You guys have obviously put up very strong organic growth numbers, and that's the focus. But when you think about opportunities to grow through acquisitions or inorganic growth, is there any areas that have an interest to you? I know you've done a small deal a couple of years ago. And all the focus, again, has been on organic, which has been fabulous. But what about inorganic or acquisitions? How do you think about that?

Sure, Gerard. I want to emphasize the importance of our organic transformation, which is showing real results and gaining momentum. We believe this will create significant value for our clients and shareholders in the near, medium, and long term. While we are open to acquisition opportunities that could enhance our value proposition, we currently feel no urgency to pursue M&A, as our organic efforts are progressing well. This gives us flexibility, as we believe that the reasons some companies engage in M&A are not always justified. Our philosophy remains unchanged: M&A can be beneficial if executed properly, but we need to ensure any opportunities align with our strategic priorities, fit our culture, and offer solid financial returns. The benchmarks for potential deals are high, and we only want to pursue them if they make sense, given that we are not in a position where we have to acquire.

Very good. And just to tie into that, in the markets you operate, what are the markets that are the most robust? Is it domestic U.S.? Or is it Europe? Asia? Because obviously, you're global, you've got a good feel for that. Where are you guys seeing the best growth and the best opportunities for growth?

It's interesting. It's going to sound like I'm not going to give you a satisfactory answer to the question because it really is all of the above. The U.S. is the biggest market that we operate in. If you want the split, it's approximately 40% outside of the U.S. So we feel like we've got a good global balance, but the U.S. obviously has got a lot of opportunity for us and a lot of our platform has seen the growth. But actually, last year, the fastest growing in percentage terms region was actually Asia. So clearly, there's opportunity there as well. And I would say historically in Europe, we might have been a little bit under-penetrated so that there's real opportunity there as well. So I wouldn't really break the opportunity down on geographic lines. And as Dermot said, we don't really break it down on business lines either because we see opportunity and pathway in each one of the businesses, albeit for very different reasons, and that really ties back to this point about the different things going on in the markets, these mega trends, whether it's capital markets, private markets, et cetera, that I talked about before. So this is a critical part of how we're thinking about the company. We are deeply invested in making the company work more effectively, the agility, the platform operating model in terms of how we run the place. We've deeply invested in the commercial model so that we can actually get more and more out of the businesses that we have, this great breadth of businesses, to deliver to clients, including in more combinations and more solutions, which is exciting. Dermot mentioned product and innovation; that's exciting because that's about new products in the same way as he mentioned, new logos earlier on. And so all of those things come together for us think, to be able to drive opportunity, which is one of the reasons why when we sit and look at what we have, going back to the beginning of the answer to your question on M&A, we feel like we've just got a lot of opportunity with what we've got to make more of it.

Very good. Dermot, I have a quick question about Slide 6, specifically the graph on deeper client relationships. I don't believe you mentioned this, but if you did, I apologize. What percentage of customers are currently utilizing more than three products or businesses? Is there still significant potential for growth in this area, given that you have not fully penetrated all segments of your customer base?

There is still significant potential for improvement. We are experiencing momentum and a cultural shift, moving away from siloed operations. Today marks a transition from Phase I to Phase II, but our work is ongoing. We believe there are opportunities for further growth, additional training, and better integration across our businesses. For instance, asset management has the potential to leverage Pershing much more effectively than it currently does, as well as enhance its collaboration with asset servicing. The leaders of these three divisions are starting to recognize this potential. We possess strong capabilities in asset management, and it's important to share those resources with the rest of the firm and our BNY clients.

I wanted to ask about expenses. You're guiding for 3% to 4% for '26, so the midpoint is similar to what you reported for '25. However, we're discussing flat markets from year-end. How should I understand the difference, considering some of the market-related increases in expenses are expected to lessen, compared to the efficiency savings you can achieve versus the additional $500 million from '25? What is your perspective on that balance regarding expenses for '26?

So I'm looking at Page 21 of the financial presentation, Emily. And look, for the first time this year. Previously, we've guided some operating leverage and positive operating leverage. Today, we're coming out and saying it's going to be greater than or equal to 100 basis points. And over the last few years, I think we've managed to establish some credibility that we are very good stewards of our expense base, very good financial discipline. And we've harvested roughly $500 million a year for each of the last 3 years, and we've reinvested that in the business to grow. And so it's really about the 3% to 4% guide for 2026 is that continued investment in the business in a very agile and dynamic way, which gives us then the confidence to be able to guide to the top line growth of 5%. So it all starts with top-down where we kind of say we want to solve and deliver positive operating leverage to you. And then as a consequence of that, in the budget season, then we're going to go through the bottoms-up planning analysis and we arrive at this model that gives us this flex on the expense side.

Got it. Okay. Regarding the net interest income, you've mentioned clarifying that 5% figure in total revenue when we focus specifically on net interest income. Can you discuss the factors that will influence net interest margin moving forward? I understand there is an impact from reinvestment on the security side, but you've also noted some compression in deposit margins in the fourth quarter. Is there potential for significant expansion in net interest margin to support that 5% growth in net interest income?

So I'm not too sure what your definition of significance is, but I would expect over the course of 2026 for NIM to grind higher from where it is today.

My question on capital was asked and answered, so we can end it here.

Thank you, operator, and thanks, everyone, for your interest in BNY. If you have any follow-up questions, please reach out to Marius and the IR team. Be well.